Saturday, 17 May 2008

Surviving the Perfect Storm

People are saying that we are now experiencing the "perfect storm" the confluence of events which created havoc in the global economy and affected everybody around the world. Never in the history of the world we have high fuel prices, weak American economy, the burst of the sub-prime bubble, high commodity and food prices and disasters such as those experiencing in Myanmar and China, all at the same time.

Whether we like or not, our businesses would be affected in one way or another. Although the prices of fuel are controlled in Malaysia, the subsidy required to maintain present prices requires the diversion of fund allocated for other productive spending of the government. So we would perhaps less infrastructure and spending on strategic initiatives which would enhance the competitiveness of the future Malaysian economy. Well the government has to balance between the divergent of interests, especially after experience significant setback in the last general election.

So, what options do you have as leaders of your business setups?

First, in my view, is to look at the effect of the market dynamics to the demand for your products or services. Does the increase in the general price level reduce the capacity of your customers to procure what you are selling? Does is change their behaviour and start to go for goods or services that are more value for money compared to yours? Is the demand going to be higher because the shift in buying trend is to your favour? Understanding the effect of the perfect storm to the demand level in your industry would allow you to appreciate the risks and opportunities that come along with the storm.

Second is about to understand the effect of the changing demand to the competitive elements in your industry. Does is make competition more intense as demand is shifting to cheaper goods which has lower profit margin? How would you, as a business, differentiate yourself further from the "me too" businesses? Can you retain margin and volume by being more focus towards a certain segment of the market? Should you sell more abroad? By understanding the affect of the storm to the competitive elements within your industry and on your major competitors would indicate to you the options that you could consider.

The third step is to consider your firm's ability to seize the opportunities or managing the risks identified. Do have the people, technology, marketing capabilities or even adequate funding? Your key business processes would also need to be reviewed to support any changes in direction and value proposition that you may decide to pursue. Historically, the failure to support changes in business direction with changes in how things are done and how people think and behave, resulted in failure to achieve the desired intention.

Different business entities would experience different implications from the perfect storm. The longer the global economy remains stormy, the higher the uncertainty level and more challenging the business environment would be. This requires leaders of business to be on their toes in ensuring the sustainability of their businesses could be maintained.

It is obvious the present challenging scenario could not be left attended. Ignore it at you r own peril!